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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Learning Objectives

1. Describe the nature of a business and the role of

accounting and ethics in business.
2. Summarize the development of accounting principles
and relate them to practice.

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DISCLAIMER: This document is a draft and the information contained herein is subject to change as this document is currently undergoing
review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Nature of Business and Accounting

o A business is an organization in which basic

resources (inputs), such as materials and
labor, are assembled and processed to
provide goods or services (outputs) to
customers.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Nature of Business and Accounting

o The objective of most businesses is to earn a

profit.
o Profit is the difference between the amounts
received from customers for goods or services
and the amounts paid for the inputs used to
provide the goods or services.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Types of Businesses

Service Businesses Service

Delta Air Lines Transportation services
The Walt Disney Company Entertainment services

Merchandising Businesses Product

WalMart General merchandise
Amazon.com Internet books, music, videos

Manufacturing Businesses Product

Ford Motor Company Cars, trucks, vans
Dell Inc. Personal computers

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 The Role of Accounting in Business

o Accounting can be defined as an information

system that provides reports to users about
the economic activities and condition of a
business.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 The Role of Accounting in Business

o The process by which accounting provides

information to users is as follows:
 Identify users.
 Assess users’ information needs.
 Design the accounting information system to meet
users’ needs.
 Record economic data about business activities and
events.
 Prepare accounting reports for users.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 THE ROLE OF
ACCOUNTING IN
BUSINESS

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Managerial Accounting

o The area of accounting that provides internal

users with information is called managerial
accounting or management accounting.
o Managerial accountants employed by a
business are employed in private accounting.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Financial Accounting

o The area of accounting that provides external

users with information is called financial
accounting.
o The objective of financial accounting is to
provide relevant and timely information for
the decision-making needs of users outside of
the business.
o General-purpose financial statements are one
type of financial accounting report that is
distributed to external users.
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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Role of Ethics in Accounting and Business

o The objective of accounting is to provide

relevant, timely information for user decision
making.
o Accountants must behave in an ethical manner
so that the information they provide users will
be trustworthy and, thus, useful for decision
making.
o Ethics are moral principles that guide the
conduct of individuals.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Role of Ethics in Accounting and Business

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Role of Ethics in Accounting and Business

The answer to …  Failure of individual

character
“What went wrong for  Firm culture of greed
these companies?” … and ethical
indifference

involves one or both of

these factors. (Exhibit 2)

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Role of Ethics in Accounting and Business

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Opportunities for Accountants

o Accountants and their staff who provide

services on a fee basis are said to be
employed in public accounting.
o Accountants employed by a business firm,
government, or a not-for-profit organization
are said to be employed in private accounting.
o Public accountants who have met a state’s
education, experience, and examination
requirements may become Certified Public
Accountants (CPAs).
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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Opportunities for Accountants

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
DISCLAIMER: This document is a draft and the information contained herein is subject to change as this document is currently undergoing
review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
Generally Accepted Accounting Principles

o Financial accountants follow generally

accepted accounting principles (GAAP) in
preparing reports.
o Within the U.S., the Financial Accounting
Standards Board (FASB) has the primary
responsibility for developing accounting
principles.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Generally Accepted Accounting Principles

o The Securities and Exchange Commission

(SEC), an agency of the U.S. government, has
authority over the accounting and financial
disclosures for companies whose shares of
ownership (stock) are traded and sold to the
public.
o Many countries outside the United States use
generally accepted accounting principles
adopted by the International Accounting
Standards Board (IASB).
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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Business Entity Concept

o Under the business entity concept, the

activities of a business are recorded
separately from the activities of its owners,
creditors, or other businesses.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 PROPRIETORSHIP

A proprietorship is  70% of business

owned by one entities in the U.S. are
proprietorships.
individual.
 They are easy and
cheap to organize.
 Resources are limited
to those of the owner.
 Used by small
businesses.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 PARTNERSHIP

A partnership is  10% of business

similar to a organizations in the
U.S. (combined
proprietorship
with limited
except that it is liability
owned by two or companies) are
more individuals. partnerships.
 Combines the skills
and resources of
more than one
person.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 CORPORATION

A corporation is  Generates 90% of

business revenues.
organized under  20% of the business
state or federal organizations in the U.S.
statutes as a  Ownership is divided
into shares, called
separate legal stock.
taxable entity.  Can obtain large
amounts of resources
by issuing stock.
 Used by large
businesses.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 LIMITED LIABILITY COMPANY (LLC)

A limited liability  10% of business

company (LLC) organizations in the
combines the U.S. (combined
attributes of a with partnerships).
partnership and a  Often used as an
corporation. alternative to a
partnership.
 Has tax and legal
liability advantages
for owners.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Cost Concept

o Under the cost concept, amounts are initially

recorded in the accounting records at their
cost or purchase price.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Cost Concept

o Aaron Publishers purchased a building on

February 20, 2012, for $150,000. Other amounts
related to this purchased are shown on the next
slide.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Cost Concept

 Price listed by seller on Jan. 1, 2012 $160,000

 Aaron Publishers’ initial offer to buy on Jan. 31, 2012 140,000
 Purchase price on Feb. 20, 2012 150,000
 Estimated selling price on Dec. 31, 2014 220,000
 Assessed value for property taxes, Dec. 31, 2014 190,000

Under the cost concept, Aaron Publishers records the

purchase of the building on February 20, 2012, at the
purchase price of
$150,000.
The other amounts listed above have no effect on the
accounting records.
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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Objectivity Concept

o The objectivity concept requires that the

amounts recorded in the accounting records
be based on objective evidence.
o Only the final agreed-upon amount is
objective enough to be recorded in the
accounting records.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
 Unit of Measure Concept

o The unit of measure concept requires that

economic data be recorded in dollars.

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review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.
DISCLAIMER: This document is a draft and the information contained herein is subject to change as this document is currently undergoing
review. The final version of this teacher’s resource manual will be published as soon as the review has been completed.